Debt management, public loan and other matters on fiscal policies have remained critical issues in public discourse over the years. A country to a large extent progresses if there are no records of fiscal rascality, irresponsibility, indiscipline and imprudence on the side of the government. One question that keeps begging for a response is “To what extent do borrowing and public loans improve the welfare and well-being of the people?”
Worried by the current state of affairs in the country, stakeholders in the financial sector, civil society organizations, academia, and government agencies at a one-day dialogue put together by the Fiscal Responsibility Commission, came together and discussed what they saw as high-handedness and crude attitude of some financial institutions and government agencies regarding borrowing and debt management and its implications on the macroeconomics of Nigeria and 36 States.
The crux of the matter at the session was ‘Implementing Section 45 of The Fiscal Responsibility Act (FRA) 2007,’ which spells out thus: 45(1) of the FRA spoke specifically to banks: “All banks and financial institutions shall request and obtain PROOF OF COMPLIANCE with the provisions of this Part before lending to any Government in the Federation.” Section 45(2): states- “Lending by banks and financial institutions in contravention of this Part shall be unlawful.”
Given the above provisions, stakeholders believe that Fiscal responsibility is the responsibility of everyone if the Bola Ahmed Tinubu administration would succeed. Recall that the president earlier in the year inaugurated the Presidential Committee on Fiscal Policy and Tax Reforms headed by a tax expert, Mr. Taiwo Oyedele. However, the Commission (FRC), led by Mr. Victor Muruako (Esq), in his address decried the negligence of section 45 of the FRC Act, and outright disregard for the Commission by some state actors with impunity.
“Pursuant to its mandate in Section 3 of the Fiscal Responsibility Act to monitor and enforce the implementation of the Act; having also been empowered by Section 3(1)(e) of the Act to “perform any other function consistent with the promotion of the objectives of this Act,” the Fiscal Responsibility Commission (FRC) has been conducting verification exercises on utilization of debts contracted by governments and public institutions. In the course of these verification exercises over the years, the Commission has reviewed documentation of a good number of loans and the utilization of such loans made by banks to subnational governments and their institutions.
“But in the past two years, for instance, we have reviewed some loans contracted at different times by 11 State Governments and public institutions across 6 geopolitical zones of Nigeria, from five (5) local banks. We note, with a sense of alarm, that none of these loans passed FRC’s basic test of compliance! A 100% failure rate.
“In order to make public debt assuredly helpful to Nigeria’s economic journey, the Fiscal Responsibility Act, in its PART IX and PART X, particularly Sections 41, 44 and 45, set out the framework and guidelines for debt, indebtedness and borrowing by the Federal, State, Local Governments and their institutions. These provisions serve to keep the lender, borrower, regulator, evaluator, assessor, researcher, etc in the same page.
“Our observation is that applications for loans by subnational governments, in particular, are often received, processed, approved and disbursed by banks without full recourse to the provisions of Sections 41, 44 and 45 of the Fiscal Responsibility Act 2007. For instance, not once in the Commission’s verification exercises, has it confirmed that a PROOF OF COMPLIANCE WITH PROVISIONS OF THE FRA was specifically requested for and obtained by a bank or financial institution “before lending to any government in the federation,” as required by Section 45 of the FRA”
FRC Chairman revealed that only one, out of a recent sample of thirteen (13) loans to governments across the country, had an associated “Cost-Benefit Analysis, detailing the economic and social benefits of the purpose to which the intended borrowing was to be applied,” in accordance with Section 44(1) of the FRA.
“Granted, public debt’s low risk nature makes it attractive to bankers; but when the same bankers proceed to lend in a manner that makes their lending unlawful (per Section 45 of the FRA 2007), they ineluctably exacerbate their risk exposure. Stress, induced by failure to mind provisions of the FRA, could lead to grave consequences for both the banks and the Nigerian economy.”
“Granted, public debt’s low risk nature makes it attractive to bankers; but when the same bankers proceed to lend in a manner that makes their lending unlawful (per Section 45 of the FRA 2007), they ineluctably exacerbate their risk exposure. Stress, induced by failure to mind provisions of the FRA, could lead to grave consequences for both the banks and the Nigerian economy.”
“Our fear is that, figuratively speaking, some chickens may come home to roost and, when that happens, public debt’s low risk nature may turn out to be an albatross around the neck of such banks and governments. The unsavoury effect may spread well beyond the individual banks to the entire macroeconomic space.
“Because we have responsibilities towards macroeconomic stability of Nigeria, we call on banks and financial institutions in the country to support the bold macroeconomic reform initiatives of this government by being intentional in helping to reduce the risk of macroeconomic instability through (by that their lending practices consistently comply with provisions of FRA.) What Constitutes Proof of Compliance and who should receive requests for, and issue same with provisions of the FRA, are clearly stated in the Act” he asseverated.
In a keynote address, Secretary to the Government to the Federation (SGF), George Akume, represented by Dr. Eze David, avowed that Tinubu’s administration was determined to correct all errors and omissions, and follow extant rules, regulations and laws of federal Republic of Nigeria.
“We must borrow in the right way and for the right purpose and ensure target is met. We shall lose nothing when we do the right thing by following simple laid down rules, regulations and laws” he stressed.
For the Deputy Speaker, Federal House of Representatives, Hon. Benjamin Kalu, represented by Hon. Abubakar Hassan Nalaraba, Chairman, House C’ttee on Aids, Loans & Debt Management, he asserted that States government must strive to be independent and boost Internal Revenue (but not at the peril of the people they govern). “For us, we’re determined to monitor every foreign loan. We have billions of dollars coming as grants, but we can’t pinpoint what and how they are managed” he deplored.
Similarly, Director General of Nigeria’s Governors Forum (NGF), Asishana Okauru, represented by the Senior Programme Officer, Olanrewaju Ajogbasile, reiterated the Forum’s readiness to collaborate with government institutions to ensure the right things are done at all costs regarding public debt management.
While the Nigerian Financial Intelligence Unit (NIFU) tasked FRC to engage NGF for sustainable resolution of the matter under review, representatives of different banks took a swipe on the matter saying, “Regarding Section 45 of FRA, the banks are not the problem, we’re the most regulated sector in Nigeria, however we’re ready to do the right thing.”
Other stakeholders believe that Nigeria’s fiscal conduct is at the heart of the country’s current economic woes. They condemned Central Bank of Nigeria’s (CBN) Ways and Means of financing advanced N6.2 trillion (without appropriation) to the Federal Government (FG) which brought the total debt of the FG to CBN to N23.3tr at the end of 2022. This is according to data contained in the 2022 audited financial statement of the apex bank released.
They gave the new CBN governor, Cardoso Olayemi, charge to be man of his words as he had resolved to ensure fiscal and monetary policy compliance, and never hesitate to sanction erring financial institution no matter whose ox is gored.
Conversely, some concerned Nigerians maintained that the SECTION under review was inadequate since there was no clear cut sanctions nor penalties against anybody (including corporates) who goes contrary to the Act regarding borrowing. Making this observation was the Director, Department of Special Insured Institutions, from the Nigeria Deposit Insurance Corporation (NDIC), Mrs. Adebayo Olukoya, who called for more awareness and collaboration to enforce FRC Act.
Others urged State governments to domestic fiscal Responsibility Act to bring sanity in public debt and resource management, while States that have already enacted a fiscal Responsibility Law, should enforce it to the letter. “We can’t be living on borrowing. In saner climes, responsible governments borrow to finance infrastructure for human development. It’s an error to borrow for consumption. World Bank reported that in 2022, Nigeria used 101.5% of our revenue to service debt. This so sad! When banks give loans without following the law, it spells doom for us”
They lamented how some government officials enjoy immunity with impunity, “regrettably, reports have it that governors have borrowed over N40bn from January to June, just to pay Salary and consumption. This should stop. With the current realities in the country, it would not be business as usual” they roared.
Sadly, the forum which directly affect the Central Bank of Nigeria (CBN) and the Debt Management Office (DMO), no official from these two all-important public institutions were represented.